The government and ASIC are demanding banks and financial service providers strengthen their scam and fraud defences. With this nefarious activity costing Australians $318 million in the past 15 months alone, the industry’s positive response has not come quickly enough.
With industry funds feeling the heat from APRA, it’s likely more members will look for a better option, especially if they are nearing or in retirement. Those choosing to do so need to tread warily.
Self-funded retirees can rest easy: Division 296 tax dying on the vine
Self-funded retirees who have been losing sleep at night over the proposed Division 296 tax reform can rest a little easier, says Nicholas Ali (pictured), who heads technical services for the independent specialist SMSF administrator Neo Super.
Ali, who has closely followed the debate over this tax reform, which proposes a 15 per cent higher tax rate on the earnings of superannuation balances exceeding $3 million, since it was first outlined by the government in early 2023, is convinced the legislation – it’s scheduled to be debated in the Senate today – won’t be enacted before Parliament rises for an election due by May 17.
“I think it’s dead in the water, to be honest. I don’t think the Senate cross bench are going to budge. The reason they might shift their vote is if the government were willing to horse trade. But there’s been no suggestion that the government is prepared to make any substantive changes to the legislation.
“I know (Treasurer Jim) Chalmers was saying something the other day that there had been heaps of consultation, but that’s just window dressing. They had a set policy position and there’s been no genuine effort to consider any alternative points of view. On the two critical issues – taxing unrealised capital gains and indexation – the Government hasn’t budged and there’s been no indication they will do so.”
For Ali, the key objection is the proposal to tax unrealised capital gains.
“Chalmers is right to say SMSFs must have a degree of liquidity, and this must be included in their investment strategy, but to extrapolate from this that they must anticipate a tax on unrealised capital gains is nonsensical,” he tells The Golden Times.
“Trustees simply don’t know what it’s going to be. It’s not just a case of holding cash aside for known liabilities or contingencies. It’s holding cash aside for something that you don’t even know what’s going to happen, and that flies in the face of the primary goal of superannuation – to give people certainty about their retirement savings.”
While Ali is confident the legislation won’t be passed, at least in the current Parliament, he is concerned about how this tax proposal is undermining trust in superannuation.
It’s not just Labor, with Ali saying the changes former Treasurer Scott Morrison introduced in 2016 – the $1.6 million balance cap on total superannuation, reducing the concessional contributions cap and lowering the annual non-concessional contributions cap – were “a real dog’s breakfast”.
“The Coalition doesn’t have a good track record either when it comes to superannuation. So, what really concerns me is that clients are telling us they are losing faith in the system. It’s not just those with $3 million in their super funds who would be directly affected by this proposed tax, but younger people greatly concerned by the fact it won’t be indexed.
“They do their sums and realise that by the time they reach 65 and inflation is factored in, they will be paying this tax. It’s making them very cynical, not just about superannuation but government. I have no doubt they will examine how their finances are structured and adapt accordingly. For government, it might even mean less revenue – a perverse outcome.”
The government’s decision to take a hard line on indexation flummoxes Ali who believed it was included to provide a bargaining chip.
“On taxing unrealised capital gains, they’ve painted themselves into a corner, so I can’t see them moving on that issue. But I always thought indexation would have been an easy sweetener for the government to offer up, especially as that’s the issue that’s affecting younger people.”
He sees many similarities between Division 296 and the franking credits issue that played out in the 2019 federal election.
“Labor believed then, as it does now, that only a small cohort of people would be affected. Although fewer people will be impacted by this proposed tax – the government estimates 80,000 – the effect will be far more widespread than the initial numbers would suggest, no different to the franking credits issue.”
